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The Inefficiency of Capitalism

The Inefficiency of Capitalism: Economic Calculation in the Corporate Commonwealth

Originally published as Economic Calculation in the Corporate Commonwealth.

Kevin Carson (2007)
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Capitalism sells itself as a system of production that exacts severe social and personal costs in the name of rewarding efficiency, economic rationality, and the production of value above all else. But while the costs are real, the rewards are illusory. From contemporary mutualist author Kevin Carson, this booklet examines how capitalism fails to produce even on its own terms — how diseconomies of scale and pervasive knowledge problems cause highly centralized firms constantly divert resources, hobble efficiency, and destroy value while manufacturing managerial waste and hierarchical social control. The Calculation Problem pioneered by laissez-faire economists like Ludwig von Mises and Friedrich Hayek in fact reveals the inefficiency all forms of bureaucratic consolidation — not only that of state central planners, but also of corporate bosses and gatekeepers propped up by government power. The only way for markets to become more efficient is for them to become more humane — by allowing irrational centralization to collapse under its own weight, and to be replaced by disintermediation, bottom-up diffusion of economic power and decentralized worker ownership of the means of production.

“The general lines of the rational-calculation argument are well known. A market in factors of production is necessary for pricing production inputs so that a planner may allocate them rationally. This calculation argument can be applied not only to a state-planned economy, but also to the internal planning of the large corporation under intervention, or state capitalism. . . . Entire categories of goods and production methods have been developed at enormous expense, either within military industry or by state-
subsidized R&D in the civilian economy, without regard to cost. Subsidies to capital accumulation, R&D, and technical education radically distort the forms taken by production. . . . Blockbuster factories and economic centralization become artificially profitable, thanks to the Interstate Highway system and other means of externalizing distribution costs. This also describes quite well the environment of pervasive irrationality within the large corporation: management featherbedding and self-dealing; ‘cost-cutting’ measures that decimate productive resources while leaving management’s petty empires intact; and the tendency to extend bureaucratic domains while cutting maintenance and support for existing obligations. . . .

“Such pathologies are not the result of the free market . . . The problem is that the state, by artificially reducing the costs of large size and restraining the competitive ill effects of calculation problems, promotes larger size than would be the case in a free market – and with it calculation problems to a pathological extent. The state promotes inefficiencies of large size and hierarchy past the point at which they cease to be worth it, from a standpoint of net social efficiency, because those receiving the benefits of large size are not the same parties who pay the costs of inefficiency. The solution is to eliminate the state policies that have created the situation.”

Introduced October 2011.

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This item is issue No. 23 in an ongoing series:
Market Anarchy Zine Series. Full print runs, back issues and subscriptions to receive new issues are available for order.